Tan Kin Lian's Blog: Family Income Benefit

Saturday, November 28, 2009

Family Income Benefit

A family income benefit is a life insurance policy that pays a monthly income to the family following the death of the life assured. The income is payable for the remainder of the term.

I consider this type of insurance to be the most suitable policy for a person to take care of the financial needs of the family. It is more suitable than a term insurance policy.

Take the example of a male aged 30 with a monthly income of $3,000 and young children. He can buy a term insurance policy to cover $300,000 for 25 years and pay an annual premium of $720. For the same premium, he can buy a family income benefit to pay $3,000 a month from death until the end of 25 years.

If death occurs during the first year, the total payout is $3,000 X 12 X 25 = $900,000, but paid monthly over 25 years. This is 3 times the amount payable under level term insurance. If death occurs at end of year 15, the total payout is $3,000 X 12 X 10 years = $360,000, which is still more than the payout under the level term.

The monthly payout is better to meet the family needs, as the spouse does not need to worry about how to invest the lump sum.

Unfortunately, the insurance companies in Singapore are not keen to sell the family income benefit. Most of their sales are made through the agent, who wants to sell other life insurance policies that pays a higher commission to them. The agent will try to convince the customer to buy a policy that gives a return on the premiums, although the return is rather poor and is usually less than 2% per annum.

Some companies offer family income benefit, but they loaded up the premium to a much higher rate, to give a high profit and expense margin. The premium could be two times of what it should be.

To get a competitive rate, the customer should ask a few insurance companies to quote for a family income benefit to pay $X a month for a term of 25 years. If several companies are willing to quote the rate, they are likely to offer a more competitive rate, that reflects the actual cost of claims plus a fair margin for expenses and profit.

I hope that life insurance companies will offer this plan to be sold directly to customer through the internet.

Tan Kin Lian

8 comments:

Anonymous said...: There are only 2 companies selling disability income plan whcih is similar to the family income. Only income earners can buy and is allowed to buy 70% of the last earned income.
But why only 2 companies selling it?; November 28, 2009 9:44 PM
Anonymous said...: I did not even know about such a product!

If only the insurance companies will offer real and sensible products, I think they will still make good profits, and many will still buy.

Foolish people.
Now they will have to suffer a drop.; November 28, 2009 10:18 PM
Anonymous said...: Insurance agents are not interested to tell or sell what benefits you, lah.They earn peanuts from this type of products. It is time consumers wake up to realise that they have been short changed by insurance agents all these years. The next time, before saying yes consult FISCA first.Tell the agents you have to consult your wife and then you consult FISCA, hor.; November 28, 2009 11:45 PM
Anonymous said...: Mr Tan

Assuming that a person knows exactly the type of insurance he/she wants to buy. What is the most cost effective way of buying this coverage? Is there a way a member of the public can buy direct from the insurance company and save on the comission?

Hope you can share your advice and experience on this.; November 29, 2009 9:03 AM
thefisherman said...: What you can do is to walk-in to the branch office of the insurance company, or call to arrange an appointment in advance. Be direct and straight to ask for the specific coverage plan you want, the agent should be able to advice you the premium immediately. Try 2-3 insurnace companies and you will get the plan you need with good value.; November 29, 2009 2:02 PM
Anonymous said...: Buying direct is getting popular in US and many insurance companies are joining the fray. The products come without the commission and they are priced at a deep discount.
If agents don't provide proper advice why should one pay them for doing nothing and fill up forms.
Some agents argue that buying direct has a disadvantage, ie no one to help in the event of claim. Is it big deal? Can't the company provide a service for this group of people? It is so simple. Have some staff specially to take care of claims like adjusters.
It is the worse to have middle men like agents. If they are dishonest they can turn black into white.If they are incompetent they screw up your future. If that is you would get why not take it upon yourself to screw yourself up? However the likelihood is you will be more careful and will ask and get more information before you buy. This is making informed decision.
Yes, we must press MAS to have direct portals.; November 29, 2009 3:36 PM
Raymond Chua said...: Thank you Mr Tan for highlighting the benefit of this type of insurance. I am sourcing for it now from my agents. Thanks!; December 12, 2009 9:42 PM
owenmunger said...: Great information on family income benefit insurance. Life insurance is a very important step in an adult's life. We all know life is unpredictable and we never know what lies around the corner. So that makes life insurance so important to protect yourself and your family.; October 22, 2010 3:07 AM